Guiding Lines: Count on your strength

If we dissect the structure of investments, it becomes clear that not only professional developers invested in new trading premises and warehouses. Active retailers for a long time have mastered both this and another development art.

The turnover of retail trade for the first quarter of 2007 increased 13.6 percent in comparison with the same period last year, therefore retailers are anxious to search for new trade premises. No less of a rise has been observed in the last two years in the warehouse and logistics sector. In 2006 the scale of logistic projects has noticeably grown - it is now already normal practice for complexes to measure 300,000 sq.m, according to analysts. By the end of 2006 the supply of good quality warehouses in the Moscow region only had increased to 2.5 million sq.m, with 700,000 sq.m of newly built premises. And developers have announced the construction of a further 1.4 million sq.m in 2007.

All these tendencies in both the warehousing and trading sector are not parameters of only one market. Trade and logistics have always been closely connected. Now we are seeing retailers pulling developers of warehouses, together with logistics operators, into the regions, setting the pace and standards of work of local players. In turn, professional developers and logistics specialists, feeling great demand from retailers, are trying to provide all of them with warehouses. Among the big projects situated near Moscow at the end of 2006-the start of 2007 are the Severnaya Domodedovo project (360,000 sq.m) by Eurasia Logistic and the second and third phases of the Krekshino logistics park (total area 145,000 sq.m), which is being built by RosEvroDevelopment. BMW Russland Trading has already rented 12,500 sq.m at this terminal, and Mont Blanc 14,000 sq.m. A class A complex is also under construction by Ghelamco 30 km from the MKAD on Dmitrovskoye shosse.

The regions are not lagging behind. In Yekaterinburg the large Chkalovsky terminal (250,000 sq.m) is being built by local corporation Abak. Ural-Container, together with the administration of Yekaterinburg and the region, founded the Euroasian international transport-logistic center. The project should open the international transport corridor Berlin - Warsaw - Minsk - Moscow - Nizhny Novgorod - Yekaterinburg - Omsk - Novosibirsk - Irkutsk - Peking. On a 53-hectare site, no less than 80,000 sq.m of warehousing units will be located. The example of Samara company "Victor and Co Megacomplex na Moskovskom" is also interesting. The project possesses a shopping and entertainment center that goes by the same name in Samara, and at the beginning of 2006 it also started to build a class A logistics complex measuring 100,000 sq.m for $46 million. These warehouses are intended to be leased but the company will allocate 20 percent of the area for itself.

But there are still not enough high quality warehouses and distribution centers in Russian cities. In the meantime trading operators are coming and vigorously developing their retail chains. Every Russian retailer has its own strict standards on the storage of its production, and for foreign retailers the bar is raised even higher. Therefore retailers often independently build warehouses and take on the role of logistics. For example, IKEA, Danone and Coca-Cola have done this.

In 2003 IKEA constructed a $40-million warehouse in the Moscow Region's Solnechnogorsk - its first distribution center in Russia. The premises measure 60,000 sq.m.

Danone has an industrial-warehouse complex in Chekhov in the Moscow region and in Tolyatti. And the world's leading drinks manufacturer Coca-Cola found another place for production this year in the south of Russia. In the Kuleshovsky industrial zone (Azovsky district of the Rostov region) it will build a premises with the capacity of up to 500 million liters of soft drinks per year and will become one of the largest in Eastern Europe. You can imagine how many warehouses are required for such a large quantity of production. So far Coca-Cola has opened 11 factories in Moscow, St. Petersburg and other cities (total investments stand at almost $1 billion).

Eldorado has its own warehouses in the regions. One of Eldorado's new projects is a large warehouse complex measuring 250,000 sq.m in Novosibirsk, which, under forecasts, will become the main distribution center of the company in Russia and will allow it to increase its sales of home appliances by 15-20 percent. Investments are planned to total $125 million. Pyaterochka has global plans to spend $200 million on the construction of warehouses in the regions. And X5 Retail Group has similar plans, as does O'Key, Castorama and Auchan For such companies there is a term on the international market - Big Box Retailers.

Many pharmaceutical distributors build specialized warehouse units independently. For example, Protek has constructed a production facility near Sergiev Posad costing $50 million. As of January 1, 2007, the company had 145,000 sq.m, of which the company owned 80,000 sq.m. SIA-International announced plans a year ago to build a pharmaceutical factory in Tushino in the Moscow region costing $10 million.

In truth, consultants still argue about whether these warehouses should be included in the general statistical reviews of the market as such warehouses would not be on the open market, and are under construction "for itself." On the other hand, their construction reduces serious pressure on the general market: it is not so necessary for large retailers to search for space that can be rented. And the areas they need are not small.

However retailers already have difficulties in the sphere of warehouse logistics. The development of warehouses or hubs directly depends on their strategies of work in the regions. Many trading companies work in cities under franchises. For example, if a Moscow retailer enters a regional city it is one level of work with a warehouse. If it sells a franchise to a local company it is down to its own discretion to choose either a local or capital developer or to search for an existing warehouse. The standards of quality in the two cases can be different. It is especially difficult for foreign retailers: their demands are high, and regional franchises at times disappoint them with the standard of premises and professionalism.

Anyhow, experts predict that the trade boom will continue for the next 5 years. So modern warehouses for all tastes, the development of distribution center chains, new transport corridors across the whole of Russia, railway and automobile production lines which are served by strong good-looking men in uniforms like the ones on billboards, is what lies ahead for market players.